Shawbrook half-year results 2026: profit rises 16% as efficiency improves

Shawbrook Group PLC delivered a strong first half of 2026, with underlying profit before tax rising 16.0% to £195.5 million and management reiterating its full-year guidance.

The specialist bank benefited from higher net interest income, selective loan growth and better operating efficiency. Its underlying cost-to-income ratio improved from 40.0% to 36.4%, meaning a smaller proportion of income was consumed by operating costs.

There are still areas for investors to watch. Impairment losses rose 55.5% to £50.7 million, partly because Shawbrook took further provisions against a small legacy development finance cohort. Reported returns also received some help from a £25.8 million gain on sale linked to capital markets activity.

Here is what matters from the original company announcement.

Shawbrook's key first-half figures

Metric	H1 2026	H1 2025	Change
Net interest income	£354.6 million	£310.9 million	14.1%
Net operating income	£387.2 million	£335.5 million	15.4%
Underlying profit before tax	£195.5 million	£168.6 million	16.0%
Underlying return on tangible equity	18.1%	18.3%	-0.2 percentage points
Cost-to-income ratio	36.4%	40.0%	-3.6 percentage points
Impairment losses	£50.7 million	£32.6 million	55.5%
Cost of risk	0.57%	0.42%	+0.15 percentage points
Loan book including OTD	£20.1 billion	£17.0 billion	18.3%

Underlying profit growth of 16.0% is comfortably ahead of the 5.0% increase in administrative expenses. That positive operating leverage, where income grows faster than costs, is central to the investment case presented in these results.

Income growth outpaced costs

Net interest income increased 14.1% to £354.6 million. This is the difference between interest earned on loans and interest paid on funding, making it a core measure of banking income.

Shawbrook's net interest margin edged up to 4.38% from 4.35%. Net interest margin measures net interest income relative to interest-earning assets.

However, investors should also consider the figure excluding the gain on sale. On that basis, net interest margin was 4.09%, compared with 4.05% a year earlier. The underlying movement was therefore positive, but modest.

Other income increased 32.5% to £32.6 million. This included a £25.8 million gain from the disposal of retained notes in the £0.5 billion Lanebrook 2024-1 transaction.

The gain is real income, but it is linked to a transaction rather than normal lending activity. Investors assessing repeatable earnings may therefore want to separate this benefit from the bank's broader operational progress.

Efficiency is the standout improvement

Shawbrook's cost-to-income ratio fell to 36.4%, from 40.0% in H1 2025 and 38.1% in H2 2025. The bank is now close to its medium-term ambition of a ratio in the mid-30s.

Its underlying cost-to-average-principal-employed efficiency ratio also improved to 1.59%, from 1.74% a year earlier. Average principal employed refers broadly to the average lending assets supporting the business.

Management attributed the progress to decisions involving organisational design, the property estate and technology. Artificial intelligence is being deployed across the lending cycle to support employee judgement and reduce manual work. In Real Estate, AI-assisted underwriting is targeting a reduction in preparation time of up to 50%.

That target is not the same as a realised saving, but it illustrates where management expects further efficiency gains to come from.

Loan growth includes substantial distribution activity

The loan book including originate-to-distribute activity reached £20.1 billion, up from £19.2 billion at the end of 2025. Shawbrook described this as 10% annualised growth.

Originate-to-distribute, or OTD, involves originating loans before transferring or distributing the exposure through capital markets transactions rather than retaining all of it on the balance sheet.

Shawbrook completed two OTD transactions totalling £1.3 billion during the half. These included the £0.8 billion Aldbrook Mortgage Transaction 2026-1, its thirteenth securitisation, alongside the Lanebrook transaction.

The distinction matters because the retained loan book was £17.67 billion, slightly below £17.79 billion at the end of 2025. Growth was clearer when OTD assets were included, showing how capital markets execution has become part of Shawbrook's approach to expanding originations while managing its balance sheet.

The figures include £276.9 million of Blue Motor Finance loans classified as assets held for sale. Shawbrook signed a contract to sell the portfolio on 4 August 2026, although further financial details were not disclosed.

Higher impairments are the main concern

Impairment losses rose from £32.6 million to £50.7 million, while the cost of risk increased from 0.42% to 0.57%. Shawbrook said the increase reflected further provisioning against a small legacy development finance cohort.

The broader portfolio remained resilient according to management. The arrears ratio was 1.7%, unchanged from the first quarter, although slightly above the 1.6% reported at the end of 2025.

This is not evidence of widespread deterioration based on the disclosed figures, but the scale of the impairment increase warrants attention. Investors will want to see whether the legacy development finance issue is now adequately provided for and whether arrears remain controlled.

Capital and deposits strengthened

The common equity tier 1 ratio, a key measure of a bank's highest-quality capital, increased to 13.0% from 12.4% at the end of 2025. Shawbrook remains on course for its full-year target of more than 13.2% before Basel 3.1 changes.

The total capital ratio rose to 16.4% from 14.8%. In May, the bank issued a £250 million additional tier 1 capital instrument and tendered for its existing £124 million instrument at a materially lower coupon. Additional tier 1 instruments are loss-absorbing securities used to strengthen a bank's regulatory capital.

Customer deposits increased to £18.8 billion from £18.4 billion. The stock cost of deposits declined to 3.80% from 3.92%, while the loan-to-deposit ratio fell from 96.8% to 93.9%. That gives Shawbrook flexibility to moderate deposit growth during the second half.

Full-year guidance remains unchanged

Metric	FY 2026 guidance
Loan book including OTD	Around £21 billion
Cost-to-income ratio	Below 38%
CET1 ratio	Above 13.2% pre-Basel 3.1
Underlying return on tangible equity	Around 17%
Dividend policy	Maiden ordinary dividend payable in FY 2027

The H1 cost-to-income ratio of 36.4% is already inside the full-year target, while underlying return on tangible equity of 18.1% is above the approximately 17% guidance level. The loan book including OTD is also approaching the £21 billion objective.

Shawbrook reiterated plans to pay its maiden ordinary dividend in FY 2027 in respect of FY 2026 earnings. The proposed amount was not disclosed.

What investors should watch in the second half

Shawbrook's first half combined double-digit profit growth, strong efficiency gains and improved capital generation. The reduction in deposit costs and continued OTD execution provide further flexibility, while unchanged guidance indicates management believes the performance is sustainable through the remainder of 2026.

The principal counterweight is credit. Impairments rose considerably faster than income, cost of risk increased and arrears were slightly higher than at the year-end. The £25.8 million gain on sale also means headline income growth should not be viewed as entirely recurring.

The most useful second-half indicators will be impairment trends, progress towards the £21 billion loan book target and whether the cost-to-income ratio remains in the mid-30s. Details of the maiden dividend will also matter, but for now its size is not disclosed.